An introduction to Investec
The information in this presentation relates to the year ending 31 March 2017, unless otherwise indicated. An overview of the Investec Group Investec: a distinctive specialist bank and asset manager
Facilitating the creation of wealth and management of wealth
• Established in 1974 • Today, efficient integrated international business platform employing approximately 9 700 people • Listed on the JSE and LSE (a FTSE 250 company) • Total assets of £53.5bn^; total equity*^ £4.8bn; total FUM £150.7bn^
Distribution channels Origination channels Core infrastructure
Since 1992 Assets: £18.7bn
Since 1974 Assets: £38.8bn
*Including preference shares and non-controlling interests. 3 ^At 31 March 2017. Balanced business model supporting our long-term strategy
Three distinct business activities focused on well defined target clients
Corporate / Institutional / Government Private client (high net worth / high income) / charities / trusts
Asset Management Specialist BankingSpecialist Banking WealthWealth & Investment& Investment (operating completely independently) Provides a broad range of services: Provides investment Provides investment Provides a broad range of services: Provides investment management services and management services • Lending management services and • Lending independent financial independent financial planning • Transactional• Transactional banking banking planning advice advice • Deposit raising• Treasury activities and trading • Treasury and trading • Advisory • Advisory • Investment• Investmentactivities activities
Maintaining an appropriate balance between revenue streams
Capital light activities Capital intensive activities
• Asset management • Lending portfolios 56% • Wealth management 44% • Investment portfolios • Advisory services • Trading income • Transactional banking services . client flows Contributed to Contributed to • Property and other funds . balance sheet management group income* group income*
Fee and commission incomeTypes of income Net interest, investment and trading income
*At 31 March 2017.. 4 Solid recurring income base supported by a diversified portfolio
Across businesses
% contribution to operating profit before tax* 100%
90%
80%
70% Specialist 60% Banking
50% Wealth & Investment 40% Across geographies 30% Asset Management 20% % contribution to operating profit before tax* 10% 100%
0% 90% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 80% Overall contribution from Asset Management and W&I UK and Other 70% 2017: 40% 2016: 40% 2015: 43% 2014: 46% 2013: 45% 2012: 48% 60% Southern Africa 50%
40%
30%
20%
10%
0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*Before goodwill, acquired intangibles, non-operating items, group costs and after other non-controlling interests. 5 We have a distinctive investment offering
• Clients are at the core of our • Serving select market niches business as a focused provider of tailored structured solutions • Building business depth by deepening existing client • Enhancing our existing relationships position in principal Specialised businesses and geographies • High level of service by strategy and through organic growth and being nimble, flexible and Client select bolt-on acquisitions innovative uniquely focused positioned business model
• Contributing to society, • Strong, entrepreneurial macro-economic stability Sustainable culture that stimulates and the environment business and Strong extraordinary performance • Well established brand long-term culture • Passionate and talented people who are empowered • Managing and positioning the strategy and committed group for the long term • Depth of leadership • Balancing operational risk with financial risk while • Stable management team creating value for • Strong risk awareness shareholders • Employee ownership • Cost and risk conscious
Resulting in a quality scalable global business
… a quality scalable global business 6 We continue to have a sound balance sheet
Key operating fundamentals Cash and near cash
• Senior management “hands-on” culture
• A high level of readily available, high quality liquid assets – representing approx 25% - 35% of our liability base. Balance as at 31 March 2017 was £12.0bn Average • No reliance on wholesale funding
• Healthy capital ratios - always held capital in excess of regulatory requirements and the group intends to perpetuate this philosophy. Target common equity tier 1 ratio of above 10% and total capital ratios of 14%-17%
• Low gearing ratio – approx. 10 times; with leverage ratios in excess of 7%
• Geographical and operational diversity with a high level of recurring income continues to support sustainability of Low gearing ratios operating profit times 16 13.8 14 13.0 12.5 11.6 12 11.3 11.3 10.3 10.2 10.1 9.4 10 8 6.2 5.8 5.4 6 4.7 4.5 4.7 4.3 4.3 4.7 4.7 4 2 0 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar 16 Mar 17
Gearing ratio (assets excluding assurance assets to total equity) Core loans to equity ratio
7 We have a sound track record
Recurring income Revenue versus expenses
£’mn £’mn 2500 80% 2,500
2000 2,000 60%
1500 1,500 40% 1000 1,000
20% 500 500
0 0% - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Trading income Investment income Other fees and other operating income Annuity fees and commissions Total revenue Expenses Net interest income Annuity income* as a % of total income
Operating profit before tax** and impairments Adjusted EPS^
£’mn pence 800 60 700 50 600 40 500 400 30
300 20 200 10 100 - 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Operating profit before tax and impairments** Operating profit before tax**
*Where annuity income is net interest income and annuity fees. 8 **Before goodwill, acquired intangibles, non-operating items and after other non-controlling interests. ^Where Adjusted EPS is earnings per share before goodwill, acquired intangibles and non-operating items. We have a sound track record
Third party assets under management Core loans and advances and deposits
£’bn Net inflows of £0.7bn for the year to March 2017 £’bn Deposits: an increase of 5.5% on a currency neutral basis 160 35 Core loans: an increase of 7.6% on a currency neutral basis 120% 140 30 100% 120 25 80% 100 20 80 60% 15 60 40% 40 10 20 5 20%
- - 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Customer accounts (LHS) Asset Management Wealth & Investment Other Core loans and advances to customers (LHS) Loans and advances to customer deposits (RHS)
Total shareholders’ equity and capital resources Net tangible asset value
£’mn pence £’mn 7,000 600 4,000 6,000 3,500 500 5,000 3,000 400 4,000 2,500 300 2,000 3,000 1,500 2,000 200 1,000 100 1,000 500 - - - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total shareholders’ equity (including preference shares and non-controlling Net tangible asset value (excluding goodwill) (£'mn) (RHS) interests) Net tangible asset value per share (excluding goodwill) (pence) (LHS) Total capital resources (including subordinated liabilities) Share price (pence) (LHS)
Results are shown for the year-ended 31 March, unless otherwise indicated. 9 Currency neutral basis: calculation assumes that the closing exchange rates of the group’s relevant exchange rates remain the same as at 31 March 2017 when compared to 31 March 2016. We have invested in our Brand
…our Communities …our People
… and the Planet
10 Summary of year end results – salient financial features
Year to Year to Investec group consolidated results in Pounds Sterling 31 Mar 2017 31 Mar 2016 % change** Income statement Adjusted earnings attributable to ordinary shareholders before goodwill, acquired intangibles and non-operating items (£'000) 434,504 359,732 20.8% Operating profit* (£'000) 599,121 505,593 18.5%
Balance sheet Total capital resources (including subordinated liabilities) (£'million) 6,211 4,994 24.4% Total shareholders' equity (including preference shares and non-controlling interests (£'million) 4,809 3,859 24.6% Total assets (£'million) 53,535 45,352 18.0% Net core loans and advances to customers (including own originated securitised assets) (£'million) 22,707 18,119 25.3% Cash and near cash balances (£'million) 12,038 10,962 9.8% Customer accounts (deposits) (£'million) 29,109 24,044 21.1% Third party assets under management (£'million) 150,735 121,683 23.9% Capital adequacy ratio: Investec plc 15.1% 15.1% Capital adequacy tier 1 ratio: Investec plc 11.3% 10.7% Capital adequacy ratio: Investec Limited 14.2% 14.0% Capital adequacy tier 1 ratio: Investec Limited 10.8% 10.7% Credit loss ratio (core income statement impairment charge as a % of average gross core loans and advances) 0.54% 0.62% Defaults (net of impairments and before collateral) as a % of net core loans and advances to customers 1.22% 1.54% Gearing ratio (assets excluding assurance assets to total equity) 10.1x 10.2x Core loans to equity ratio 4.7x 4.7x Loans and advances to customers as a % of customer deposits 76.2% 73.6%
Selected ratios and other information Adjusted earnings per share^ (pence) 48.3 41.3 16.9% Net tangible asset value per share (pence) 377.0 294.3 28.1% Dividends per share (pence) 23.0 21.0 9.5% Cost to income ratio 66.3% 66.4% Return on average adjusted shareholders' equity (post tax) 12.5% 11.5% Return on average adjusted tangible shareholders' equity (post tax) 14.5% 13.7% Return on risk-weighted assets 1.45% 1.34% Recurring income as a % of operating income 72.0% 71.7% Weighted number of ordinary shares in issues (million) 900.4 870.5 3.4% Total number of shares in issue (million) 958.3 908.8 5.4% Closing share price (pence) 544 513 6.0% Market capitalisation (£'million) 5,213 4,662 11.8% Number of employees in the group (including temps and contractors) 9,716 8,966 8.4% Closing ZAR: £ exchange rate 16.77 21.13 20.6% Average ZAR: £ exchange rate 18.42 20.72 11.1%
*Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests. 11 ^Before goodwill, acquired intangibles, non-operating items and after non-controlling interests. **Refer to next slide for information on a currency neutral basis. Summary of year end results – salient financial features – currency neutral
As the group’s Pound Sterling results have been positively impacted by the appreciation of the Rand: Pounds Sterling exchange rate over the period, currency neutral financial features are reflected in the table below
Results in Pounds Sterling Actual as Actual as Actual as Neutral Neutral reported reported reported currency currency Year to Year to % Year to % 31 March 31 March change 31 March change 2017 2016 2017^ Operating profit before taxation* (million) 599 506 18.5% 546 8.0% Earnings attributable to shareholders (million) 442 368 20.1% 401 8.8% Adjusted earnings attributable to shareholders** (million) 435 360 20.8% 395 9.9% Adjusted earnings per share** 48.3p 41.3p 16.9% 43.9p 6.3%
Results in Pounds Sterling Actual as Actual as Actual as Neutral Neutral reported reported reported currency currency At At % At % 31 March 31 March change 31 March change 2017 2016 2017^ Net tangible asset value per share 377.0p 294.3p 28.1% 341.6p 16.1% Total shareholders' equity (million) 4,809 3,859 24.6% 4,252 10.2% Total assets (million) 53,535 45,352 18.0% 46,338 2.2% Net core loans and advances to customers (million) 22,707 18,119 25.3% 19,501 7.6% Cash and near cash balances (million) 12,038 10,962 9.8% 10,591 (3.4%) Customer accounts (deposits) (million) 29,109 24,044 21.1% 25,376 5.5% Third party assets under management 'million) 150,735 121,683 23.9% 139,664 14.8%
* Before goodwill, acquired intangibles, non-operating items and after other non-controlling interests. ** Before goodwill, acquired intangibles, non-operating items and after non-controlling interests. 12 ^ For income statement items we have used the average Rand: Pounds Sterling exchange rate that was applied in the prior year, i.e. 20.72. For balance sheet items we have assumed that the Rand: Pounds Sterling closing exchange rate has remained neutral since 31 March 2016. Our strategy
• Our strategy for the past 20 years has been to build a diversified portfolio of businesses and geographies to support clients through varying markets and economic cycles.
• Since inception we have expanded through a combination of organic growth and strategic acquisitions.
• In order to create a meaningful and balanced portfolio we need proper foundations in place which gain traction over time.
Our long-term internationalisation strategy: • Follow our customer base • Gain domestic competence and critical mass in our chosen geographies • Facilitate cross-border transactions and flow. We have a very deliberate and focused client strategy: • To leverage our unique client profile • To provide the best integrated solution supported by our comprehensive digital offering Our current strategic objectives include:.
Growing Asset Relevant Growing the Specialist Other Management in all regions internationalisation of Banking business • Continue investing in Wealth & Investment • Focusing specifically on • Building and developing our technology and people to larger markets • Digitalisation channel and client franchises across all maintain digital client launch of Click & Invest areas experience • Reversing the investment underperformance • Creating an international • Improving the ROE in the • Improving the cost to operating platform business income ratio by focusing on operational efficiencies • Implementing the UK Private Banking strategy • Diversity across the group and transformation in SA
13 An overview of Investec Bank Limited (IBL) Overview of Investec Bank Limited (IBL)
• Established in 1974 • Obtained a banking licence in 1980
• Wholly owned subsidiary of Investec Limited (listed on the JSE) . Houses the Investec group’s Southern African and Mauritius banking subsidiaries as well as the trade finance business (Reichmans Ltd) and Investec Import Solurions . A material portion of the bank’s principal investments have been transferred to a new vehicle, Investec Equity Partners (IEP). The bank holds a 45% stake in IEP . Asset Management, Wealth & Investment, Institutional Stockbroking and the Property division are housed in fellow subsidiaries under Investec Limited
• Today, efficient integrated business platform employing approximately 3 700 people • 5th largest banking group in South Africa (by assets) • Total assets of R426bn and total shareholders’ equity of R35bn
• Regulated by the SARB
• Follows the same strategic approach as the greater Investec group • Focus on building niched businesses in Southern Africa
15 IBL: organisational structure as at 31 March 2017
Non-SA and SA resident shareholders
% of Total Group: % of Total Group: Profit**: 62% Investec Limited Investec plc Profit**: 38% DLC Tangible NAV: 55% Listed on JSE Listed on LSE Tangible NAV: 45% Assets: 65% arrangements Assets: 35% Shares in issue: 31% SA operations Non-SA operations Shares in issue: 69%
Salient features of Investec’s DLC structure • Investec plc and Investec Limited are separate legal entities and 84%* listings, but are bound together by contractual agreements and Investec Investec Investec Investec Asset mechanisms Securities Bank Property Management • Investec operates as if it is a single unified economic enterprise (Pty) Ltd Limited Group Holdings (Pty) • The companies have the same Boards of Directors and Holdings Ltd management (Pty) Ltd • Shareholders have common economic and voting interests as if Investec Limited and Investec plc were a single company: – Equivalent dividends on a per share basis 45%^ – Joint electorate and class right voting Reichmans Investec Investec Investec • Creditors are however ring-fenced to either Investec Limited or Ltd Bank Equity Import Investec plc as there are no cross guarantees between the (Mauritius) Partners Solutions companies Ltd Pty Ltd (Pty) Ltd^^ • Regulation of the DLC structure: – The South African Reserve Bank (SARB) is the lead Operating activities key: regulator of the group – The UK Financial Conduct Authority and Prudential Wealth & Investment Regulation Authority are the regulators of Investec plc while the SARB is the regulator of Investec Limited Asset Management – The Memorandum of Understanding between the two Specialist Banking regulators sets out that the role of the lead regulator would change if 70% or more of the on and off balance sheet assets are held by Investec plc
Note: All shareholdings are 100% unless otherwise stated. Only main operating subsidiaries are indicated. 16 *16% is held by senior management in the company. ^ 55% held by third party investors in the company together with senior management in the business ^^Previously Blue Strata Trading (Pty) Ltd. **Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests. IBL: operating structure
The bank operates as a specialist bank within Southern Africa, focusing on three key areas of activity:
Corporates / Institutional / Government clients High net worth and high income private clients
Investment activities Corporate andSpecialist Institutional Banking Banking Private Banking activities activities
Principal investments • Treasury and trading services • Transactional banking and foreign • Specialised lending, funds and debt capital exchange markets • Lending • Advisory and equity capital markets • Deposits • Investments
Integrated systems and infrastructure
17 Investec Bank Limited: sound balance sheet and operating fundamentals IBL: sound balance sheet and operating fundamentals
Supported by: • Senior management “hands-on” culture • Board, executives and management are intimately involved in the risk management process • Risk awareness, control and compliance are embedded in our day-to-day activities Risk and governance framework
19 IBL: sound capital base and capital ratios
Total capital Total risk-weighted assets
R’mn R’mn 60,000 450,000 90% 73% 74% 400,000 76% 76% 78% 79% 78% 80% 50,000 73% 350,000 73% 70% 72% 40,000 300,000 60% 250,000 50% 30,000 200,000 40% 20,000 150,000 30% 100,000 20% 10,000 50,000 10% - - 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total assets (LHS) Total shareholders' equity Total risk-weighted assets (LHS) Total capital resources (including subordinated liabilities) RWA as a percentage of total assets (RHS)
Basel capital ratios*
• Investec has always held capital in excess of regulatory requirements and the % group intends to perpetuate this philosophy and ensure that it remains well 18.0 16.1 16.2 15.5 15.6 15.3 15.4 15.4 capitalised 16.0 14.6 14.3 14.2 • Capital adequacy targets: 14.0 11.0 – Common equity tier 1 target: above 10% 12.0 10.7 10.3 10.6 10.3 10.3 10.6 10.8 9.3 – Total CAR target: 14% – 17% 10.0 9.0 7.5 7.7 7.5 7.7 8.3 • As we are on the Standardised Approach in terms of Basel II our RWA 8.0 6.6 7.0 7.2 7.3 7.6 represent a large portion of our total assets. As a result we inherently hold 6.0 more capital than our peers who are on the Advanced Approach 4.0 • We have continued to grow our capital base throughout the crisis without 2.0 recourse to government and shareholders. Our total shareholders’ equity has - grown by 177% since 2008 to R35bn at 31 March 2017 (CAGR of 12% per year) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 • 31 March 2017: total capital adequacy ratio of 15.4% and a common equity tier 1 ratio of 10.8% Total capital adequacy ratio Common equity Tier 1 ratio Leverage ratio • Our fully loaded Basel III common equity tier 1 ratio is estimated to be 10.8% and our fully loaded leverage ratio is 7.4%
*Since 2013 capital information is based on Basel III capital requirements as currently applicable in South Africa. Comparative information is disclosed on a Basel II basis. The leverage ratio has only been disclosed since 2014, historic information has been estimated. 20 IBL: low gearing ratios
Total assets Gearing
R’mn times 450,000 14.0 12.5 12.3 12.6 400,000 11.7 12.0 11.8 11.6 12.0 11.4 11.4 11.4 350,000 10.0 300,000 7.9 7.5 250,000 8.0 6.8 6.8 6.6 6.1 6.0 5.9 5.9 6.1 200,000 6.0 150,000 4.0 100,000 50,000 2.0 - - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net core loans and advances Cash and near cash balances Other assets Total gearing ratio Core loans to equity ratio
Regulatory leverage ratios - peer group comparisons
% • We have recorded a CAGR of around 14% in core loans over the past 5 10 years driven by increased activity across our target client base, as well as 8.4 growth in our franchise 8 7.6 6.6 6.9 • In addition, we have seen similar growth in cash and near cash balances 6.6 over the same period 6 • We have maintained low gearing ratios with total gearing at 11.6x 4 and an average of c.11.9x over the past nine years
2
0 Investec Bank Barclay's Africa Firstrand Nedbank Standard Bank Limited Group
Source: as disclosed in financial statements as at May 2017 21 IBL: surplus liquidity Total deposits – increase in retail deposits. We are a net Total loans and deposits provider of funds to the interbank market
R’mn R’mn 350,000 100% 350,000 90% 300,000 80% 300,000 250,000 70% 250,000 60% 200,000 200,000 50% 150,000 40% 150,000 100,000 30% 100,000 20% 50,000 50,000 10% - 0% - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net core loans and advances (LHS) Customer accounts (deposits) (LHS) Bank deposits Customer accounts (deposits) Loans as a % of customer deposits (RHS)
Cash and near cash balances • We have experienced strong growth in retail and corporate deposits, and lengthening and diversification of our deposit base with no reliance on any one deposit channel and no reliance on wholesale interbank funding • We remain a net provider of funds to the interbank market • Customer deposits have grown by 162% since 2008 (11% CAGR) to R303bn at 31 March 2017 • We maintain a high level of readily available, high quality liquid assets –targeting a minimum cash to deposit ratio of 25%. These balances have increased by 202% since 2008 (13% CAGR) to R117bn at 31 March 2017 (representing 39% Since 2011 R’mn of customer deposits) Ave 89,178 Min 51,465 • Advances as a percentage of customer deposits is at 74.4% Max 137,224 • Fixed and notice customer deposits have continued to grow with our March 2017 117,586 customers display a strong ‘stickiness’ and willingness to reinvest in our suite of term and notice products. • At 31 March 2017 IBL’s (bank solo) three-month average Liquidity Coverage ratio was 130% (well ahead of current minimum requirements of 80% for 2017) and the average of the Big 4 banks of c. 102%) 22 IBL: analysis of our core loan portfolio and counterparty exposures
• Credit and counterparty exposures are to a select target market: • high net worth and high income clients • mid to large sized corporates, public sector bodies and institutions • We typically originate loans with the intent of holding these assets to maturity, and thereby developing a ‘hands-on’ and long- standing relationship with our clients • The majority of the bank’s credit and counterparty exposures reside within its principal operating geographies, namely South Africa and Mauritius
Total loan portfolio as at 31 March 2017: R233bn 3 types of lending: Legend – reads clockwise Commercial property investment 2.7% 0.5% 1.1% Commercial property development 14.3% Lending collateralised by property Commercial vacant land and planning (17% of total loan portfolio) 0.4% Residential property development 18.7% 0.8% 1.1% Residential vacant land and planning 0.6% High Net Worth (HNW) and HNW and private client - mortgages (home loans) other private client HNW and specialised lending 2.4% (49% of total loan portfolio) Acquisition finance 2.5% Asset based lending
5.7% 25.8% Fund Finance Corporate and other Other corporate, institutional, govt. loans (34% of total loan portfolio) Asset finance
Project finance 23.3% Resource finance and commodities
23 IBL: core lending and asset quality
Core loans and asset quality
R’bn • Credit quality on core loans and advances for the year ended 250 4.5% 31 March 2017: 4.0% • Impairments on loans and advances increased from R517mn to R657mn 200 3.5% 3.0% • The credit loss charge as a percentage of average gross core loans and 150 2.5% advances was 0.29% (31 March 2016: 0.26%) 2.0% 100 • The percentage of default loans (net of impairments but before taking 1.5% collateral into account) to core loans and advances amounts to 1.03% 1.0% 50 (31 March 2016: 1.06%) 0.5% 0 0.0% • The ratio of collateral to default loans (net of impairments) remains 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 satisfactory at 1.81 times (31 March 2016: 1.61 times)
Core loans and advances to customers (LHS)
Credit loss ratio (i.e. income statement charge as a percentage of ave gross loans) (RHS)
Net default loans before collateral as a % of core loans and advances to customers (RHS)
Trend in income statement impairment charge
R’mn 1000
900
800
700
600
500
400
300
200
100
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
24 IBL: low levels of market risk
• Within our trading activities, we act as principal with clients or the market • Market risk, therefore, exists where we have taken on principal positions, resulting from proprietary trading, market making, arbitrage, underwriting and investments in the commodity, foreign exchange, equity, capital and money markets • The focus of these businesses is primarily on supporting client activity • Our strategic intent is that proprietary trading should be limited and that trading should be conducted largely to facilitate clients in deal execution
VaR 95% (one-day) R’million Period end Average High Low 31 March 2017 Commodities 0.1 0.1 0.5 0.0 Equities 1.6 2.5 7.8 1.2 Foreign exchange 3.7 1.7 5.3 0.9 Interest rates 0.8 1.6 3.2 0.6 Consolidated* 4.1 3.4 9.1 1.5
31 March 2016 Commodities 0.1 0.1 0.2 - Equities 2.1 2.1 4.5 1.2 Foreign exchange 3.0 2.6 6.4 1.2 Interest rates 1.1 1.2 3.0 0.5 Consolidated* 4.2 3.8 8.4 2.0
* The consolidated VaR for each desk is lower than the sum of the individual VaRs. This arises from the correlation offset between various asset classes (diversification). 25 IBL: profitability supported by diversified revenue streams
Recurring income Revenue versus expenses
R’mn R’mn 12,000 100% 12,000
10,000 10,000 80%
8,000 8,000 60% 6,000 6,000 40% 4,000 4,000
20% 2,000 2,000
- 0% - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Trading income Investment and associate income Total revenue Expenses Other fees and other operating income Annuity fees and commissions Net interest income Annuity income* as a % of total income
Operating profit before tax** and impairments
R’mn • Operating profit (pre impairments) has grown 62% since 2008 6,000 • Between 2009 and 2013 our results were impacted by a substantial 5,000 increase in impairments. These have declined and are back to normalised levels 4,000 • Our net interest income has also been affected by a negative endowment 3,000 impact. Notwithstanding, we have remained profitable throughout the period. Our variable remuneration base does provide some 2,000 flexibility/”cushion” to operating profit
1,000 • We are maintaining a disciplined approach to cost control • We have a solid recurring income base comprising net interest income - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 and recurring fees • Recent growth in net profit before tax has been supported by positive Operating profit before tax and impairments** Operating profit before tax** business momentum, reflected in an increase in our client base and loans and advances
*Where annuity income is net interest income and annuity fees. **Before goodwill, acquired intangibles, non-operating items and after non-controlling interests. 26 IBL: credit ratings
Fitch Global Credit Ratings
Viability rating: bb+** National long-term rating: AA(za) Support rating: 3 National short-term rating: A1+(za) Long-term foreign currency issuer default rating: BB+** Short-term foreign currency issuer default rating: B** National long-term rating: AA (zaf) National short-term rating: F1+ (zaf)
Moody’s S&P
Baseline credit assessment (BCA) and adjusted BCA: Foreign currency long-term deposit rating: BB+** baa2 Foreign currency short-term deposit rating: B** Global long-term deposit rating: Baa2 National scale long-term rating: za.A Global short-term deposit rating: Prime-2 National scale short-term rating: za.A-1 National scale long-term deposit rating: Aa1.za National scale short-term deposit rating: P1(za)
Ratings are opinions by rating agencies of a bank's ability to repay punctually its deposit obligations. With a short-term rating reflecting the ability to repay within a time horizon of less than a year. 27 **Impacted by the rating downgrades of the South African Sovereign. Investec Bank Limited: peer analysis IBL: peer group comparisons
Long-term rating
S&P Fitch Moody's Global Credit Ratings Baseline Foreign National Foreign National Viability Support National Global credit International* National currency* scale currency* scale ratings rating scale assessment Barclays Africa Group n/a za.BB+ BB+ AA(zaf) bb+ 4 Baa2 Aa1.za baa2 BB+ AA+(za) Firstrand Bank Limited BB+ za.A BB+ AA(zaf) bb+ 3 Baa2 Aaa.za baa2 BB+ AA(za) Nedbank Limited BB+ za.A BB+ AA(zaf) bb+ 2 Baa2 Aa1.za baa2 BB+ AA(za) Standard Bank Limited n/a n/a BB+ AA(zaf) bb+ 3 Baa2 Aa1.za baa2 BB+ AA+(za)
Investec Bank Limited BB+ za.A BB+ AA(zaf) bb+ 3 Baa2 Aa1.za baa2 BB+ AA(za)
Short-term rating S&P Fitch Moody's Global Credit Ratings Foreign National Foreign National National Global National currency* scale currency* scale scale
Barclays Africa Group n/a za.B B F1+(zaf) P-2 P-1.za A1+(za) Firstrand Bank Limited B za.A-1 B F1+(zaf) P-2 P-1.za A1+(za) Nedbank Limited B za.A-1 B F1+(zaf) P-2 P-1.za A1+(za) Standard Bank Limited n/a n/a B F1+(zaf) P-2 P-1.za A1+(za)
Investec Bank Limited B za.A-1 B F1+(zaf) P-2 P-1.za A1+(za)
Rating definitions: Short-term ratings should be used for investments less than a one year time horizon and long-term ratings for periods greater than a year. Foreign currency ratings should be used when one is considering foreign denominated investments. Investments in Rand should be assessed against local currency and national ratings.
Comparative ratings have been sourced from the respective company websites as at May 2017 and may be subject to changes which we cannot be held accountable for. It is advisable to discuss the ratings of the various 29 companies with the companies themselves as this information merely reflects our interpretation thereof. *Impacted by the rating downgrades of the South African Sovereign. IBL: peer group comparisons Liquidity: regulatory liquidity coverage ratio (bank solo) (larger number is better) Asset quality ratios: (smaller number is better)
140 Credit loss ratio (PnL impairment charge) Gross defaults as a % of loans
120 4.5% 4.0% 100 3.5%
80 3.0% 2.5% 60 2.0% 40 1.5% 1.0% 20 0.5% 0 0.0% Investec Bank Barclays Africa Firstrand Nedbank Standard Bank Investec Bank Barclays Africa Firstrand Nedbank Standard Bank Limited Group Limited Group
Capital ratios %: the leverage ratio levels the playing field** Gearing ratio: Assets: equity (smaller number is better)
12% 14
10% 12 Firstrand Investec Bank 10 8% Limited Barclays Africa Standard Bank 8 6% Nedbank 6 Leverage ratio Leverage 4% 4
2% 2
0 0% Investec Bank Barclays Africa Firstrand Nedbank Standard Bank 0% 5% 10% 15% 20% 25% Limited Group
CET1 ratio Source: Company interim/annual financial results as at May 2017. Refer to definitions and explanations. 30 ** The leverage ratio is calculated as total assets (exposure measure) divided by total tier 1 capital (according to regulatory definitions). This ratio effectively assumes all assets are 100% risk weighted and is a more conservative measure than the capital adequacy ratio. IBL: peer group comparisons
Definitions and/or explanations of certain ratios: • Customer deposits do not include deposits from banks. • The customer advances to customer deposits ratio reflects how much of a bank’s advances to customers are funded from the “retail and corporate” market as opposed to the “wholesale funding and banking market”. A ratio higher than one indicates that advances to customers are not fully funded from the retail and corporate market, with the balance been funded from the wholesale market. • A capital adequacy ratio is a regulatory ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk, operational risk, etc. It is based on regulatory qualifying capital (including tier 1 and 2 capital) as a percentage of risk-weighted assets. Assets are risk-weighted either according to the Standardised Approach in terms of Basel or the Advanced Approach. • The gearing ratio is calculated as total assets divided by total equity (according to accounting definitions). • The leverage ratio is calculated as total assets (exposure measure) divided by total tier 1 capital (according to regulatory definitions). This ratio effectively assumes all assets are 100% risk weighted and is a more conservative measure than the capital adequacy ratio. Regulators are expecting that this ratio should exceed 5%. • The credit loss ratio is calculated as the income statement impairment/charge on advances as a percentage of average gross advances to customers. • Default loans largely comprise loans that are impaired and/or over 90 days in arrears.
31 Investec largest shareholders as at 31 March 2017
Investec Limited Investec plc
Shareholder analysis by manager group Number of % Shareholder analysis by manager group Number of % shares holding shares holding 1 PIC (ZA) 35,213,851 11.7% 1 Allan Gray (ZA) 54,564,790 8.3% 2 Allan Gray (ZA) 27,504,421 9.1% 2 PIC (ZA) 39,895,286 6.1% 3 Investec Staff Share Schemes (ZA)* 25,444,842 8.4% 3 BlackRock Inc (UK and US) 37,613,373 5.7% 4 Old Mutual (ZA) 15,960,095 5.3% 4 Prudential Group (ZA) 25,556,818 3.9% 5 Sanlam Group (ZA) 12,460,194 4.1% 5 Old Mutual (ZA) 23,953,282 3.6% 6 BlackRock Inc (UK and US) 11,382,316 3.8% 6 T Rowe Price Associates (UK) 21,513,929 3.3% 7 Coronation Fund Mgrs (ZA) 9,772,984 3.2% 7 State Street Corporation (UK and US) 18,845,149 2.9% 8 Dimensional Fund Advisors (UK) 9,666,468 3.2% 8 Legal & General Group (UK) 18,088,127 2.8% 9 The Vanguard Group, Inc (UK and US) 9,582,111 3.2% 9 The Vanguard Group, Inc (UK and US) 17,647,731 2.7% 10 AQR Capital Mgt (US) 7,172,136 2.4% 10 Royal London Mutual Assurance Society (UK) 16,897,419 2.6% 155,629,682 54.4% 274,575,904 41.9%
The 10 largest shareholders account for 54.4% and 41.9% of the total Investec Limited and Investec plc shares, respectively - based on a threshold of 20,000 shares. 32 Contact details
• For further information please refer to the investor relations website: www.investec.com/about-investec/investor-relations.html
• Or contact the investor relations team: – Telephone • UK: +44 (0) 207 597 4493 • SA: +27 (0)11 286 7070 – Fax: +27 11 (0) 291 1597 – E-mail: [email protected]
33 Investec group - appendices Investec group - mission statement and values
“We strive to be a distinctive specialist bank and asset manager driven by commitment to our core philosophies and values.”
Distinctive Performance Dedicated Partnership
• Outstanding talent - empowered, enabled, inspired • Respect for others • Meritocracy • Embrace diversity • Passion, energy, stamina, tenacity • Open, honest dialogue • Entrepreneurial spirit • Unselfish contribution to colleagues, clients, society
Client Focus Cast-iron Integrity
• Distinctive offering • Moral strength • Leverage resources • Risk consciousness • Break china for the client • Highest ethical standards
35 Investec – group operating structure
• Investec’s strategic goals and objectives are motivated by the desire to develop an efficient and integrated business on an international scale through the active pursuit of clearly established core competencies in the group’s principal business areas
Asset management and wealth management Specialist banking
CORPORATE AND PRIVATE ASSET WEALTH & INVESTMENT INSTITUTIONAL BANKING MANAGEMENT INVESTMENT ACTIVITIES BANKING ACTIVITIES ACTIVITIES
• Equities • Portfolio management • Transactional banking and • Principal investments • Treasury and trading foreign exchange services • Fixed income • Stockbroking • Property investment fund • Lending • Specialised lending, funds • Multi Asset • Alternative investments management and debt capital markets • Deposits • Alternatives • Investment advisory services • Institutional research, sales • Investments • Electronic trading services and trading • Retirement portfolios • Advisory
• Africa • Southern Africa • Southern Africa • Australia • Australia • Americas • Hong Kong • UK and Europe • Hong Kong • Hong Kong • Asia Pacific • UK and Europe • Southern Africa • India • Europe • UK and Europe • Southern Africa • UK • UK and Europe • USA
GROUP SERVICES AND OTHER ACTIVITIES - Central Services - Central Funding
36 Investec Bank Limited - appendices IBL: salient financial features
Year to Year to 31 March 2017 31 March 2016 % change
Total operating income before impairment losses on loans and advances (R'million) 10,754 10,388 3.5% Operating costs (R'million) 5,887 5,537 6.3% Profit before taxation (R'million) 4,159 4,295 (3.2%) Headline earnings attributable to ordinary shareholders (R'million) 3,069 3,449 (11.0%) Cost to income ratio 54.7% 53.3% Total capital resources (including subordinated liabilities) (R'million) 48,345 42,597 13.5% Total shareholder’s equity (R'million) 35,165 31,865 10.4% Total assets (R'million) 425,687 411,980 3.3% Net core loans and advances (R'million) 233,445 215,239 8.5% Customer accounts (deposits) (R'million) 303,397 279,736 8.5% Cash and near cash balances (R'million) 117,586 124,907 (5.9%) Capital adequacy ratio (current) 15.4% 14.6% Tier 1 ratio (current) 11.1% 11.0% Common equity tier 1 ratio (current) 10.8% 10.6% Leverage ratio (current) 7.6% 7.2% Defaults (net of impairments) as a % of net core loans and advances 1.03% 1.06%
Credit loss ratio (i.e. income statement impairment charge as a % of average core loans and advances) 0.29% 0.26% Total gearing ratio (i.e. total assets excluding intergroup loans to equity) 11.6x 12.6x
Loans and advances to customers: customer accounts (deposits) 74.4% 74.1%
38 IBL: income statement
Year to Year to R'million 31 March 2017 31 March 2016
Interest income 29,716 23,515 Interest expense (22,297) (16,803) Net interest income 7,419 6,712
Fee and commission income 2,235 1,945 Fee and commission expense (236) (207) Investment income 472 1,356 Share of post taxation operating profit / (loss) of associates 306 (11)* Trading income arising from - customer flow 486 293 - balance sheet management and other trading activities 70 298 Other operating income 22*
Total operating income before impairment losses on loans and advances 10,754 10,388
Impairment losses on loans and advances (657) (517) Operating income 10,097 9,871
Operating costs (5,887) (5,537) Operating profit before acquired intangibles 4,210 4,334
Amortisation of acquired intangibles (51) (39) Profit before taxation 4,159 4,295
Taxation on operating profit before acquired intangibles (944) (831) Taxation on acquired intangibles 14 11 Profit after taxation 3,229 3,475
*Share of post taxation operating profit / (loss) of associates has been shown separately from other operating income in the current period. 39 IBL: balance sheet R'million 31 March 2017 31 March 2016 Assets Cash and balances at central banks 8,353 7,801 Loans and advances to banks 31,937 26,779 Non-sovereign and non-bank cash placements 8,993 9,858 Reverse repurchase agreements and cash collateral on securities borrowed 26,627 38,912 Sovereign debt securities 47,822 41,325 Bank debt securities 7,758 13,968 Other debt securities 11,945 12,761 Derivative financial instruments 9,856 15,843 Securities arising from trading activities 653 992 Investment portfolio 7,204 6,360 Loans and advances to customers 225,669 207,272 Own originated loans and advances to customers securitised 7,776 7,967 Other loans and advances 310 367 Other securitised assets 100 115 Interest in associated undertakings 5,514 5,145 Deferred taxation assets 388 116 Other assets 5,266 3,656 Property and equipment 274 236 Investment properties 11 Goodwill 171 171 Intangible assets 508 524 Loans to group companies 18,106 11,811* Non-current assets held for sale 456 - 425,687 411,980 Liabilities Deposits by banks 32,378 37,242 Derivative financial instruments 12,556 13,424 Other trading liabilities 1,667 1,405 Repurchase agreements and cash collateral on securities lent 7,825 16,916 Customer accounts (deposits) 303,397 279,736 Debt securities in issue 5,823 7,665 Liabilities arising on securitisation of own originated loans and advances 673 809 Current taxation liabilities 977 671 Deferred taxation liabilities 109 122 Other liabilities 5,995 5,042 Loans from group companies 5,942 6,351* 377,342 369,383 Subordinated liabilities 13,180 10,732 390,522 380,115 Equity Ordinary share capital 32 32 Share premium 14,885 14,885 Other reserves 1,662 566 Retained income 18,586 16,382 35,165 31,865
Total liabilities and equity 425,687 411,980 *Restated. 40 IBL: asset quality
R'million 31 March 2017 31 March 2016 Gross core loans and advances to customers 234,655 216,155
Total impairments (1,210) (916) Specific impairments (884) (681) Portfolio impairments (326) (235) Net core loans and advances to customers 233,445 215,239
Average gross core loans and advances to customers 225,405 197,412 Current loans and advances to customers 230,131 211,807 Past due loans and advances to customers (1-60 days) 670 726 Special mention loans and advances to customers 242 415 Default loans and advances to customers 3,612 3,207 Gross core loans and advances to customers 234,655 216,155
Current loans and advances to customers 230,131 211,807 Default loans that are current and not impaired 132 867
Gross core loans and advances to customers that are past due but not impaired 1,927 1,653 Gross core loans and advances to customers that are impaired 2,465 1,828 Gross core loans and advances to customers 234,655 216,155
Total income statement charge for impairments on core loans and advances (659) (523)
Gross default loans and advances to customers 3,612 3,207 Specific impairments (884) (681) Portfolio impairments (326) (235) Defaults net of impairments 2,402 2,291 Collateral and other credit enhancements 4,339 3,690 Net default loans and advances to customers (limited to zero) --
Ratios: Total impairments as a % of gross core loans and advances to customers 0.52% 0.42% Total impairments as a % of gross default loans 33.50% 28.56% Gross defaults as a % of gross core loans and advances to customers 1.54% 1.48%
Defaults (net of impairments) as a % of net core loans and advances to customers 1.03% 1.06% Net defaults as a % of gross core loans and advances to customers --
Credit loss ratio (i.e. income statement impairment charge as a % of average core loans and advances) 0.29% 0.26% 41 IBL: capital adequacy
R'million 31 March 2017 31 March 2016 Tier 1 capital Shareholders’ equity per balance sheet 35,165 31,865 Perpetual preference share capital and share premium (1,534) (1,534) Regulatory adjustments to the accounting basis 896 1,839 Deductions (679) (695) Common equity tier 1 capital 33,848 31,475
Additional tier 1 capital before deductions Additional tier 1 instruments 1,534 1,534 Phase out of non-qualifying additional tier 1 instruments (767) (614) Tier 1 capital 34,615 32,395
Tier 2 capital Collective impairment allowances 321 229 Tier 2 instruments 13,180 10,732 Phase out of non-qualifying tier 2 instruments - (235) Total tier 2 capital 13,501 10,726
Total regulatory capital 48,116 43,121
Capital requirements 33,649 30,684
Risk-weighted assets 313,010 295,752
Capital ratios Common equity tier 1 ratio 10.8% 10.6% Tier 1 ratio 11.1% 11.0% Total capital ratio 15.4% 14.6% Leverage ratio 7.6% 7.2%
42